Lululemon: Encouraging a Healthier
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Daniels Fund Ethics Initiative University of New Mexico http://danielsethics.mgt.unm.edu Lululemon: Encouraging a Healthier Lifestyle INTRODUCTION Lululemon Athletica is an athletic apparel company intended for individuals with active lifestyles. The organization has deep roots in the yoga community and is one of the few businesses to offer apparel for this specific market. Lululemon is based in Vancouver, British Columbia, Canada and operates its clothing stores in numerous countries throughout the world. The apparel store offers product lines that include fitness pants, shorts, tops, and jackets for activities such as yoga, running, and other fitness programs. The organization operates in three segments. These segments consist of corporate-owned and operated retail stores, a direct to consumer e-commerce website, and wholesale avenues. As of 2014, the company operates 254 stores predominantly in the United States, Canada, Australia, and New Zealand. With nearly 8,000 worldwide employees, Lululemon has grown rapidly in the last 20 years and is expected to continue its growth strategy well into the foreseeable future. It has also established a subsidiary geared toward youth called Ivivva Athletica. Store growth and expansion into other countries has allowed Lululemon to achieve financial success. The organization has seen continuous increases in revenue, with a 2013 annual revenue nearing $1.6 billion. Over the past four years, Lululemon has consistently boasted annual revenue increases of about $300 million. While financially stable, the organizational structure has seen changes in recent months with the hiring of a new CEO. Lululemon hired Laurent Potdevin in January of 2014 hoping to appoint a worthy and experienced industry professional. The company also hopes to distance itself from negative headlines circling former CEO Denis “Chip” Wilson. Potdevin was once the Chief Executive Officer at TOMS Shoes and has worked in the industry for over 20 years. There is no question that Lululemon has seen great success in recent years. From its conception in 1998, the organization has grown tremendously in markets across the globe. However, Lululemon’s success has also been tainted by controversy, negative publicity, and questionable ethical decisions. This case will detail the issues and controversies circling this organization and identify how Lululemon has managed these issues. In addition, we provide information regarding the positive ethical decisions that have been made throughout Lululemon’s history. BACKGROUND This case was prepared by Justus Adams, Kristen Bruner, Ivan Mora Juarez, and Jennifer Sawayda for and under the direction of O.C. Ferrell and Linda Ferrell. It was prepared for classroom discussion rather than to illustrate either effective or ineffective handling of an administrative, ethical, or legal decision by management. All sources used for this case were obtained through publicly available material ©2014 2 Lululemon was founded by Denis “Chip” Wilson in 1998 in British Colombia, Canada. Prior to Lululemon, Wilson had spent two decades in the surf, skate, and snowboard business. He was looking for a change. After attending the first commercial yoga class offered in Vancouver, Wilson fell in love with the activity and felt incredible during and after the exercises. With a passion for technical athletic fabrics, Wilson realized that the current cotton clothing being used for power yoga was inappropriate and unpractical. Movements required breathability, flexibility, and a stretchiness that an individual could pour sweat into during exercise. With this in mind, Wilson created a design studio for his new clothing. Struggling to pay rent, the design studio became a yoga studio during the night hours. Yoga instructors who taught at the studio were asked to wear the new products and provided Wilson with useful insight and feedback on the clothing. In order to name the new company, Wilson surveyed 100 people and offered a list of 20 brand names as well as 20 logos. Lululemon is a created word that has neither roots nor meaning. It is believed that Wilson selected this name because he enjoys the sound of the 3 L’s when the word is spoken. The logo, which is actually a stylized letter A, was a logo intended for the brand name Athletically Hip, which was not selected. The first store opened in November 2000, in the beach area of Vancouver, British Columbia. The store was intended to be a community-gathering place for individuals to discuss health topics like dieting, exercise, and cycling. However, the store was so popular and busy that satisfying the customer became nearly impossible. The business grew quickly as products were popular among customers and the staff was eager to learn, expand, and challenge themselves. From the get-go, Lululemon had a strong mission that embraced a healthy and active lifestyle. Inspired by author and philosopher Ayn Rand, Chip Wilson modeled Lululemon with the intent that involves “elevating the world from mediocrity to greatness.” The company adopted the following mission statement: “Creating components for people to live longer, healthier, fun lives.” Lululemon tries to reflect this in its corporate culture. Store managers, for instance, are provided with much control over the operations of their stores, and Lululemon operates with a decentralized corporate culture. Lululemon employees are recruited and hired based on their level of commitment and how well they fit into the corporate culture. To bring its mission statement to fruition, Lululemon refers to its employees as “educators” to acknowledge the crucial role they play in helping customers to obtain a healthy and active lifestyle. Lululemon stores today are focused heavily on community involvement and interaction with local enthusiasts. Nearly all stores host in-house events on a nightly or weekly basis, with classes ranging from beginner and advanced yoga to goal setting and self-defense workshops. Events and workshops generally occur after store hours and occur on the saleroom floor after racks and products have been moved. Unlike many stores, Lululemon does not offer discounts, but sells approximately 95 percent of its products at full price. It also sells its products at higher prices than its competitors, reflecting the value of Lululemon’s products. Lululemon operates on the concept of scarcity 3 to encourage customers to buy immediately. Its store shelves often have fewer products than the shelves can hold, and many products have quick life cycle times such as six-week life cycles. Customers are therefore encouraged to purchase the product before it is gone, which is thought to be a major influence in Lululemon’s continued popularity and success with customers. In order to anchor its mission statement, Lululemon has adopted seven core values: quality, product, integrity, balance, entrepreneurship, fun, and greatness. These values serve to motivate employees and guide their decisions. ETHICAL RISKS & CHALLENGES Despite Lululemon’s strong mission statement and core values, Lululemon has faced much controversy over its history. Founder and former CEO Chip Wilson has also been criticized for controversial statements he has made, which eventually helped lead to his ouster as CEO. There have also been questions regarding whether Lululemon’s corporate culture— with its strong emphasis on greatness and competitiveness—is necessarily healthy for employees. FOUNDER’S CONTROVERSIAL STATEMENTS Lululemon founder Chip Wilson is thought of by many as a man with unorthodox opinions. Over the years, he has developed a reputation for being controversial. For instance, in a 2009 interview with Canada’s National Post Business Magazine, he admitted to having chosen the company name because “it’s funny to watch [Japanese] say it.” Wilson also stated on a blog his opinion that the rise in divorce rates and breast cancer among “Power Women” was due to a combination of smoking, taking birth control pills, and the additional stress which came from taking on the career responsibilities once held mostly by men. He attributed Lululemon’s growth as stemming from the coming together of “female education levels, breast cancer, yoga/athletics and the desire to dress feminine.” Another highly controversial statement of Chip Wilson’s involves his opinions regarding child labor laws. Wilson argues that “third-world children should be allowed to work in factories because it provides them with much-needed wages.” He claims this can help lead citizens of these countries out of poverty. The practice of child labor is a hot-button issue in the Western world because of the poor working conditions and rampant abuse worldwide. This support of child labor has angered critics, who believe Lululemon might be exploiting children in developing countries. They argue that providing children with more education is much more likely to lift them out of poverty than having them earn low wages at a dangerous job. Lululemon founder Chip Wilson would continue to make controversial statements, eventually leading to his resignation as Chairman of the Board. MISLEADING ADVERTISING 4 In 2007 the New York Times cast doubt on the authenticity of Lululemon’s VitaSea line of products. Lululemon claimed that its VitaSea products were infused with seaweed, which had medicinal properties including stress relief. In November 2007, the New York Times released an article claiming that it had tested VitaSea products and could not find seaweed fiber in the product. This claim unleashed a storm of criticism. Lululemon responded by refuting the claims of the New York Times. They cited independent tests performed the previous year. They also responded to the accusations by stating that a lab in Hong Kong had performed different tests on the product throughout the year, all of which confirmed that the products contained everything that they advertised. However, Canada’s Competition Bureau challenged Lululemon, not due to the content of the VitaSea product but rather their claims about the product’s health benefits. The bureau claimed that these claims of health benefits from seaweed were unsubstantiated and ordered Lululemon to remove all such labeling.